Facts
- A New York bank agreed to finance ventures of Traffic Stream (BVI) Infrastructure Limited, a corporation organized under the laws of the British Virgin Islands (a United Kingdom Overseas Territory).
- The financing contract was governed by New York law and included a submission to federal jurisdiction in Manhattan.
- After an alleged default, the bank sued Traffic Stream in the U.S. District Court for the Southern District of New York.
- The district court found alienage diversity jurisdiction under 28 U.S.C. § 1332(a)(2) and entered summary judgment for the bank.
- The Second Circuit raised subject-matter jurisdiction sua sponte and reversed, reasoning that an entity from a British dependent territory was not a “citizen or subject of a foreign state” under § 1332(a)(2).
- The Supreme Court granted certiorari and reviewed whether federal alienage diversity jurisdiction existed.
Issues
- Whether a corporation organized under the laws of the British Virgin Islands qualifies as a “citizen or subject of a foreign state” within 28 U.S.C. § 1332(a)(2).
- Whether alienage diversity jurisdiction requires that a party’s citizenship or subject status be held directly from a formally recognized sovereign state, rather than through a foreign state’s territory or dependency.
Decision
- The Supreme Court unanimously reversed the Second Circuit.
- The Court held that a corporation organized under British Virgin Islands law is a “citizen or subject of a foreign state” for purposes of § 1332(a)(2).
- The case was returned with federal subject-matter jurisdiction sustained.
Legal Principles
- For § 1332(a)(2), a foreign corporation is treated as a citizen or subject of the foreign sovereign whose political authority authorizes the entity’s incorporation.
- Alienage diversity jurisdiction does not require that citizenship or subject status be derived directly from an independent, formally recognized foreign state; derivation through a foreign state’s territory or dependency may suffice.
- Where a foreign sovereign exercises ultimate political authority over a territory (including authority over its laws of incorporation), entities organized under that territory’s laws may be treated as citizens or subjects of that sovereign for alienage jurisdiction purposes.
Conclusion
The Court held that a British Virgin Islands corporation falls within § 1332(a)(2) as a citizen or subject of the United Kingdom, so federal courts may exercise alienage diversity jurisdiction over suits between such entities and U.S. citizens.